Canadians are living longer than ever and have one of the highest life expectancies in the world. Combined with falling fertility rates, these positive developments in longevity have resulted in the Canadian population gradually growing older.

For the first time in Canada’s history, there are now more seniors age 65 and over than there are children under the age of 15 (Chart 1).

The Canadian population has been gradually growing olderChart 1 Canadian Population Projection by Age Group

Note: Broken lines indicate projections. Source: Statistics Canada.

Labour Market Impacts

With the oldest members of the large baby boom generation now reaching retirement age, Canada has passed a demographic tipping point. As this large generation retires from the labour market and is replaced by relatively smaller generations of new workers, the ratio of Canada’s workers to our elderly population is expected to decrease dramatically over the coming decades.

Indeed, the number of working-age Canadians (aged 15 to 64) for every senior (aged 65 and over) is expected to fall from close to 5 over the past decade to 2.5 in less than 20 years (Chart 2), one of the largest projected decreases among Organisation for Economic Co-operation and Development (OECD) countries.

Population aging will also result in an increase in the share of older workers in the labour force. Because older workers participate less in the labour market than younger workers, an aging population is expected to lead to a reduction in the overall rate of labour force participation.1 In fact, the impact of the shift toward an older population is already being felt, as the overall participation rate has now likely passed its peak.

Population aging will dramatically reduce the number of working-age Canadians for every senior and labour force participation Chart 2Ratio of Working-Age (15 to 64) Population to Population Aged 65+ Labour Force Participation Rate

The labour force includes non-institutionalized individuals aged 15 and over who are either working or actively seeking a job. Labour force participation rates are low when individuals are young (ages 15 to 24), reach peak levels between the ages of 25 and 54 and begin to decline starting at age 55. While participation rates of older individuals are expected to continue to increase, they are expected to remain well below rates seen among younger age groups.

Economic Growth Impacts Starting in the 1960s, the baby boom generation boosted the growth potential of the Canadian economy, as the first wave of that generation began to enter the labour market. However, as baby boomers move into retirement in increasing numbers, the opposite effect is expected to take hold.

Economic growth stems from growth in either labour supply or labour productivity (real output per hour worked). Reduced labour force participation due to population aging has already started and is expected to continue to reduce growth in labour supply—that is, the total number of hours worked by Canadians.

In this context, under baseline assumptions for labour force participation and productivity, the increase in the pace of population aging will have a negative impact on economic growth over the coming decades (Chart 3).

The age-related deceleration in economic growth in Canada will take place amidst other powerful, slow-moving global forces. As in Canada, the world population is aging and productivity growth has slowed across OECD countries. These structural forces are paving the way to slower global growth for the next number of years.

Public Finance Impacts With inflation expected to remain around 2 per cent per year, this negative impact on economic growth will translate into lower growth in nominal gross domestic product (GDP), the broadest single measure of the tax base.

Slower nominal GDP growth will thus reduce the growth rate of government revenues, thereby limiting the capacity of governments to continue to maintain the growth rates of public expenditure at levels as high as in the past. At the same time, population aging is also expected to put upward pressure on public expenditure, notably for age-related programs such as elderly benefits.

The medium-term fiscal forecast presented in the 2016 Fall Economic Statement provides the starting point for the long-term fiscal projection. This medium-term fiscal forecast, which is based on the average of the September private sector economic outlook survey, shows a gradual reduction in the deficit following its 2017–18 peak as well as a slightly lower federal debt-to-GDP ratio by the end of the forecast horizon (Table 1).